Asean Fund Aims to Boost Regional Economic Integration

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In an effort to reduce, if not close, the gap between the dynamic region and major wealthy economies, nations throughout South-East Asia have combined resources to launch a fund of almost $500 million to build infrastructure.

According to finance ministers of Asean, the fund will support the building of roads, railways and other public projects, reducing the need for foreign assistance, and boosting regional economic integration with hopes of its completion by 2015.

Surin Pitsuwan, Asean secretary-general, said “Our community is now being built with speed. This is a milestone. The time for donations, the time for just gifts, is over. We have to be very innovative, we have to be very collaborative in our approach.”

The region has its fair share of famous buildings and businesses, and has seen impressive growth rates, but it lacks in access to major highways, railways, clean water and electricity.

Based in Malaysia, the Asean Infrastructure Fund will initiate with $485.2 million, with hopes of financing six projects every year. The fund predicts that by 2020, it will offer $4 billion in loans, and will be worth a total of $13 billion.

Countries such as China, Japan and South Korea have shown interest in joining the fund, but the region intends to keep the project internal, at least for now.

All Eyes on China’s Economic Expansions

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While much of the world is still feeling the economic downturn, China stands strong with its confidence in its economic future. Last week, Chinese Premier Wen Jiabao said that he is confident in China’s economy.  He has openly welcomed foreign companies like ARC Investment Partners to share in the country’s growth.

As Wen said during his keynote speech at the opening of the World Economic Forum’s annual meeting in the northeastern city of Dalian, “We sincerely welcome foreign companies to actively involve themselves in China’s reform and opening up process and share the opportunities and benefits of China’s prosperity and progress.”

China is becoming more desirable for outside investors of all sorts. Recently, HSBC Holdings Plc. found that wealthy people in China are the youngest in Asia, outside of Japan.  In a recent HSBC report that covered Australia, China, India, Indonesia, Hong Kong, Malaysia, Singapore and Taiwan, they found that the average age of people in China who have liquid assets of at least 500,000 yuan was 36. This was in comparison to 48 in Hong Kong and 38 in Indonesia.

According to the report, more than 25% of wealthy Asians will be investing in greater China and Southeast Asian funds and equities in the next six months. Certainly, fund companies outside of China similarly have their eyes set on this region, and on the ever-increasing economic expansions happening in China.

The expansion into the Asian market is being seen in many sectors.  In the technology sector, companies are trying to get into the market and to target products to this new rising wealthy class.  Investment managers like Adam Roseman of ARC Investment Partners have also made China their main focus on interest.  Global banks like HSBC, Citigroup Inc. and Standard Chartered Plc are expanding into this area as well.

Cutting the Asia Fund Investments

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In recent financial news, Gottex Fund Management Holdings Ltd., just cut in half its Asia fund investments to improve returns.  While last year, it’s Asia fund had 45 holdings, this year it is expected to have only 22, as reported by Co-Founder Max Gottschalk.

The Switzerland-based company invests $400 million in 38 Asia-focused funds, and the numbers are likely to drop to 30 now.

As Gottschalk explained, "When investors are looking to invest in Asia, they're looking for punchier returns. Funds of funds are earning part of their keeps by providing access to some of the younger, emerging managers or smaller managers."

Gottex isn’t alone in the shift that it’s making.  They are joining companies like Pictet & Cie to shift to have newer, lesser-known managers to boost their returns.  Gottex’s plan at the moment is to change about 20% of the Asia hedge funds it invests in each year, up from 15%.

As Gottschalk explained, "There's a perception that the Asia market, due to its increased risks, should generate higher performance. Also there's no doubt that Asia, and the Chinese economy in particular, are drivers of global growth."

Novelis Enters Market in Shanghai

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Novelis just announced the opening of its latest office in the Shanghai World Financial Center.  This opening signals their intention to expand their presence in Asia and they have appointed James Liu as the Managing Director of Novelis China and as the Director for Sales and Marketing of Automotive Asia.

Liu’s lofty goals will include expanding Novelis’ automotive growth opportunities in both China and Korea.  As the President and CEO of Novelis said, "Aluminum has been growing at a much faster pace than other comparable materials."

"As global urbanization and income continues to accelerate in Asia, and particularly China, the flat rolled aluminum market is expected to double in size there by 2020. The opening of our Shanghai office is an important step for Novelis to further capitalize on this significant opportunity. With an expansion underway in Korea, combined with our move into China, we can better serve rapidly growing consumer demand in Asia for high-margin can, automotive and specialty products."

Novels’ aluminum sheet capacity is set to expand to one million metric tons annually with their investments in both hot rolling and cold rolling operations.  They are, at the moment, investing about $400 million to expand their aluminum rolling and recycling operations in South Korea.

Japan’s Finance Minister Elected as Head of Democratic Party

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Japan’s finance minister Yoshihiko Noda has been elected as the head of the ruling Democratic party, and is likely to soon become the country’s next prime minister as well. Japan’s next prime minister will undoubtedly inherit the region’s financial situation as Europe’s crisis deepens and economies across the globe struggle to stabilize, as well as the resurgent yen, new energy policies, the nuclear crisis and the rebuilding of the devastated northeast coast.

A political analyst in Tokyo, Hiro Katsumata, said “Noda needs to call for a national election within the next two years no matter what. The main challenge for Mr. Noda will be the cohesion in the party and to win in the national election.”

The latest leader of the Democratic Party, who also served as prime minister, was Naoto Kan. He resigned last week as a result of heavy criticism following the earthquake and tsunami in March, as well as the economic status of the country.

Steve Chao reported that “the question is whether the next leader will overcome the hurdles Naoto Kan did not manage to overcome, and, he has to show the public he is able to make the tough decisions that will help the country overcome its economic hurdles.”

Asia Stocks Fall as Crisis in Europe and US Heightens

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As the euro falls further against the dollar, Asian stocks slip as well. Mounting concerns of a new United States recession and the debt crisis in Europe have resulted in investors selling riskier assets.

Employment data in the US last week revealed that no jobs were created last month, for the first time in nearly a year.

“Even if you take out the effect from the Verizon strike, it is still a lousy number and people are concerned that growth is not there anymore,” Dominic Schnider of Singapore’s UBS Wealth Management said.

In the meantime, Europe now faces numerous political and legal trials which can have a damaging effect on the country’s already struggling economy.

“In this atmosphere, foreign investors are likely to remain risk-adverse and inactive,” explained Mitsushige Akino of Ichiyoshi Investment Management in Tokyo.

Tokyo’s Nikkei share average .N225 dropped 2%, and MSCI’s broadcast index of Asia Pacific shares beyond Japan .MIAPJ0000PUS dropped 2.6%, leaving it more than 17% below April’s high. The sectors hit the hardest were energy and materials.

Asia’s Trade Increases, China Strengthens Relations with Canada

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Though the Global Financial Crisis has not been resolved, the increase in Asian trade has encouraged many investors and companies to resume business in Chinese operations.

APM Terminals, for example, the port operations division of AP-Moller Maersk Group, has recently announced it will be continuing its investments in the region following a short pause as a result of the crisis.

Martin Christiansen, the division’s chief operating officer and head of its Asian-Pacific operations said “We are actively looking for investment opportunities in emerging Asian markets such as China, Vietnam and Indonesia.”

He added that a slight reduction of exports from China was to be expected. “The growth rate of China’s container volumes in the future is expected to be lower than the past, particularly China’s export volumes to mature markets such as the United States and Europe.”

Other companies and regions have also taken interest in China’s potential. China’s ambassador to Canada, Zhang Junsai, has stated that the relations between the two countries have improved dramatically over recent months. He continued, saying he expected trade to continue to increase, as well as foreign investment.

“China is playing an increasingly peaceful and constructive role in the world. China has performed very well during the financial crisis and I think all this is seen by the Canadian people that China is making contributions to the world economy,” Mr. Zhang said. “More importantly, China has a huge market. There is a great potential for both countries to develop friendly relations.”

Japan Stalling as Yen Rises?

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Financiers across the globe were disappointed in Japan’s move to counter the rising strength of the yen.

Early this past Wednesday, the dollar relinquished gains in comparison to the yen in Asia, increasing concerns and prompting additional measures to stem the growth. Japanese Finance Minister Yoshihiko Noda then held a press conference to discuss such measures.

The conference ended with a statement pledging a $100 billion facility dedicated to limiting the yen’s rise by encouraging mergers and acquisitions, as well as providing aid to domestic corporations in securing energy resources. The ministry will also now require currency trading reports from leading financial groups until September.

Investors around the world were unimpressed with the results of the conference, explaining that the measures would have no real impact on the situation and would not be enough to contain the increase.

“They’re hoping to get as much as they can from talk, just ramping up the threat without taking any more steps,” said Sean Callow of Westpac.

Yuji Kameoka of Daiwa Securities added that “The FX market is a global market. It is hard to contain FX movement with only these measures.”

Morgan Stanley’s Growth Estimate for Asia Drops as Inflation Increases

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Like many other financial firms, Morgan Stanley has noted the withdrawal of international investors from stocks in Asia as the economies in the region begin to falter.

One example of this is South Korea, as the won continues to decrease in value. Morgan Stanley’s growth estimate for the nation has been lowered from 4% to 3.6%, while Deutsche Bank AG has lowered its expectations for China’s expansion as well, claiming that the economic crisis throughout the rest of the world will lessen the demand for Asian exports.

“Reported downgrades of economic forecasts reduced appetite for regional assets,” explained Lee Jin III of Hana Bank. “Stock market declines affected Asian currencies including the won.”

Finance Minister Bahk Jae Wan has confirmed that inflation issues continue to plague South Korea and that the government plans to use “all possible” measures in an effort to stabilize prices. For example, the Bank of Korea left interest rates unchanged for a second month in a row, following three major increases this year.

China Pledges Millions to Horn of Africa and Sri Lankan Port

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Yesterday, China’s Premier Wen Jiabao promised to put $55.3 million towards food aid in African countries, as they suffer from one of their worst droughts in over a decade.

The offer was made during a meeting with Wen’s Ethiopian counterpart, Meles Zenawi, in Beijing, and the aid wilol be distributed throughout a number of countries in the Horn of Africa. The new donation comes in addition to the $14 million promised last month.

China has been keen on contributing to Africa recently, and China- Africa trade has climbed by 40% over one year, reaching $126.9 billion. Chinese companies have taken a particular interest in African mining, agriculture, construction and forestry.

China is also rapidly developing its trade ties with other countries as well, becoming more involved with India and South Asian countries such as Sri Lanka.

China Merchants Group LTD, one of the primary investment firms in the country, recently invested $500 million in a container port there.

“The Colombo South Container terminal is CMG’s largest investment project overseas,’ Fu Yuning of CMG said. He added that the port will have an annual throughput of 2.4 million 20-foot equivalent units once it is opened. An agreement states that China Merchants Holdings International will manage the facility for 35 years.

“We are aiming to expand business opportunities in South Asia and East Africa through the establishment of the new facility, which will anchor the port of Colombo’s position as a transshipment hub in South Asia,” said Hu Jianhua of CMHI. “We’re also targeting synergy between our home port and Sri Lanka and South Asia at large.”